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With R&D projects on the rise, it is important to know about the significant tax reliefs that are available for businesses.
The UK Government has long encouraged businesses to invest in R&D projects, believing it to be at the forefront of economic growth.
R&D tax reliefs are therefore lucrative. Although R&D claims can be complex, our tax experts can guide you through the process and ensure that your claim stands the best chance of success.
R&D tax relief for SMEs
The Government allows SMEs working on R&D projects to deduct an extra 86 per cent of their qualifying costs from their yearly profit for Corporation Tax purposes.
This is on top of the normal 100 per cent deduction, so a total 186 per cent deduction can be made.
SMEs are also able to claim a payable tax credit if the company has claimed relief and made a loss, the payable credit is worth up to 10 per cent of the surrenderable loss for most businesses, although R&D-intensive businesses (those that spend 40+ per cent on R&D expenditure) qualifying for an enhanced rate of 14.5 per cent.
Patent Box
The Patent Box scheme allows businesses to apply a lower rate of Corporation Tax (10 per cent) to profits earned from their patented inventions and certain other intellectual property.
The Patent Box is designed to incentivise businesses to maintain and commercialise their patents and IP within the UK.
R&D Expenditure Credit (RDEC)
RDEC is a similar tax relief but is geared towards larger corporations, however, SMEs can claim RDEC if they cannot claim R&D tax relief for small and medium-sized enterprises.
As of 1 April 2023, companies can be offered credit worth 20 per cent of their qualifying R&D expenditure.
The RDEC is taxable, but it can be used to offset the corporation tax bill, or claimed as a cash payment, providing significant financial relief for companies undertaking R&D.
Capital Allowances
Businesses can also benefit from capital allowances on R&D. Capital expenditure on R&D can qualify for a 100% first-year allowance.
This means that businesses can deduct the full cost of these assets from their profits before tax in the year they make the purchase.
This can include expenditure on items like equipment, machinery, and even some types of buildings.
The tax relief system for R&D projects in the UK is advantageous for businesses and is a clear sign the Government sees this area as a point of economic growth.